No Money Down Mortgages

Looking to buy a home with no down payment? It is possible. There are several ways you can accomplish this.

  1. find someone who is willing to give a gift
  2. find a lender that will allow you to carry a second mortgage.
  3. be a veteran or be married to one (VA loans).

Various cities and states have various programs to help home buyers with their down payments. There are also some not-for-profit organizations.

Buying a Home with a Gift / Grant

Each program has its own rules and, often, they run out of money. The way to find them is to go to your favorite search engine and type in mortgage down payment assistance programs + state name (or city name).

If you do that for Illinois, you find out that there’s such a thing as an IHDA loan, which offers several down payment assistance program (outright grants or loans).

If you do that for Las Vegas, you find out that the State of Nevada gives $20,000 assistance in Southern Nevada (Home Is Possible is the name of their program).

Not all lenders accept to work with all mortgage downpayment assistance programs, so you have to find one that does. Usually, at least for the States I looked at, you find a link to a list of lenders that accept the programs offered by that state right on the page that describes the program.

Buying a Home with a Second Mortgage for Down Payment

Some lenders are willing to let borrowers take a second mortgage to pay the down payment with. Some lenders go a step farther, they connect with an entity that’s willing to provide the 2nd loan.

The 2nd loan can be forgivable if the borrower meets requirements (such as making on-time payments for a number of months); other must be repaid.

The drawback of such loans, compared to grants, is the cost: the interest rate of the first loan might be higher for as long as the borrower has the long, usually if the second loan is forgivable; the 2nd loan has a higher interest than the 1st by a couple of points and the first has a higher interest rate than a similar loan taken under other programs.

By the way, if you’re looking to buy a home with no money down in the Chicago area, visit http://theChicagoMortgageBroker.com.

When Does a Second Mortgage Make Sense?

People often balk at the idea of paying 2% higher interest rates automatically. That’s not a good idea.

A good idea is to figure out how much the 2nd loan will cost and compare to other options.

For instance, if you get a forgivable 2nd that forces you to stay in the home you’re buying for 3 years and the added interest rate means that you pay an additional $10,000 (compared to having the down payment from your own money) if you make 45 months of payments on time, that means the 2nd loan is actually costing you money only with the 46th month payment.

That means that if you move out (sell the house) or refinance somewhere between month 36 and month 46, your 2nd is not only costing you nothing but has a free money part. (You are simply repaying part of it in the form of higher monthly payments, each month.)

Some of the downpayment assistance programs work with FHA loans, some with conventional loans, and all limit the amount of assistance and who can get one (by placing limits on borrowers’ income.

VA Loans

VA loans are intended to help veterans purchase houses. They have limitations on the type of property, the amount of the loan, but do not require any downpayment.

The world of lenders that are willing to give a VA mortgage is large, so finding one might be as easy as talking to your bank.

Property Types

Most down payment assistance programs limit property types to 1-unit (detached single family houses, condo units, townhouses).  Some allow for 2-unit buildings.  3 and4-unit buildings, because of their commercial nature tend not to be allowed.  (Veterans, however, can get them as VA loans allow them.)